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New York City Transit's Budget Woes - Who's To Really Blame?
March 20, 2010 1:40 AM

Every downturn in the New York City economy brings with it a massive budget emergency for the mass transit system (MTA) here. This recession is no different. Does the problem rest with the huge bureaucracy that is the MTA, or can we blame it on reduced ridership? This cogent and informative article by New York City lawyer, Francis Menton, discusses how our local leadership sold us short when the economy (read: real estate) was booming:

After running a large surplus as recently as 2006, the Metropolitan Transportation Authority suddenly in late 2008 projected a deficit of some $700 million for 2009 and announced a round of major service cuts to plug the gap. Topping the list for elimination was the Village's own M8 crosstown bus.

Our representatives to the state Legislature quickly sprang into action. State Senator Tom Duane and Assemblymember Deborah Glick appeared at meetings and rallies, wrote letters and applied pressure. On May 27, 2009, the Legislature passed a bailout package, including a new payroll tax. The M.T.A. rescinded the service cuts. The M8 was saved. Thanks Tom! Thanks Deborah!

Yay for our local reps, right? Wrong!

With the recession, subway and bus ridership is off only about 3 percent from 2008 levels, so that explains only a little. Arbitrators awarded a pay increase to the workers that Mayor Bloomberg has challenged as too generous. But again, even the pay increase explains only a small part of the problem. Instead the big dollars are in two places: (1) real estate transaction taxes, and (2) defined benefit pension plans.

Besides fares, the Legislature has provided for the M.T.A. to be funded largely by certain dedicated taxes. Prominent among those are taxes on real estate transactions, including sales of buildings. Such taxes can raise lots of money when the real estate market booms, as it did in New York from about 2003 to early 2007. But these kinds of taxes are also notoriously volatile, and the revenue they provide inevitably plummets when the real estate market falls.


How much have these revenue sources fallen during this recession?

The M.T.A. reported that it took in some $1.5 billion in real estate transaction taxes in 2007, but expects final collections of only about $500 million for 2009. That’s a swing of a billion dollars!

Defined benefit pension plans are almost equally volatile. When the stock market booms, pensions become overfunded and require little or even no contributions for years on end. Then the stock market falls -- as it did from 2007 to March 2009 -- and suddenly the pensions are underfunded and require massive contributions. How big can these swings be? For just one of its many pension plans (NYCERS), the M.T.A. reports that required contributions went from $220.5 million in 2006 to $333.2 million in 2007 to $429.5 million in 2008, with final 2009 numbers not yet in. Other pension plans of the M.T.A. followed the same pattern, for totals of multiple hundreds of millions of dollars of adverse change.

Put together the toxic combination of real estate transaction taxes and generous defined benefit pension plans, and it's no surprise at all that the M.T.A. went from hundreds of millions of dollars of surplus in 2006 to hundreds of millions of dollars of deficits today.

Menton asks:

Who then made the decision to saddle the M.T.A. with major revenues from super-volatile real estate transaction taxes and also with major costs from just-as-volatile defined benefit pension obligations?

That of course would be the New York State Legislature. The Legislature controls both the taxes that support the M.T.A. and also its employee pensions. The Transport Workers Union, along with the other city worker unions, greatly prefers to have its pensions controlled by the state Legislature, as opposed to through collective bargaining, because it knows that the Legislature is a soft touch. Union political contributions and vote efforts undoubtedly are the explanation for that. In simple terms, the Legislature responds to the concentrated special interest of the employee unions, and very little to the riders.

And finally, who are those local legislatures at whom Menton takes aim?

So, while Mr. Duane and Ms. Glick get admiring press coverage for their supposed efforts to save our crosstown bus, in fact they (along with the rest of the Legislature) are the ones directly responsible for putting the M.T.A. into the financial mess that has put the M8 on the block. The bus riders, and voters, are like the marks in a three-card Monte game, with their attention misdirected to the miraculous "saving" of the service -- when, in fact, the service has been doomed from years ago by improvident and incompetent financial arrangements implemented by our elected representatives.

Yes, the same folks who appear as heros in the beginning of this tale. Indeed, it's an intriguing story that needs more exposure, especially when ordinary working folks are bearing the brunt city-wide for our elected lawmakers short-sightedness:

"It's cool that people fought for the bus because without it, elderly people can't commute to work. We have little kids that need to get to school. Without it, it wouldn't be possible," said one transit user.

"I'm ecstatic. Can you imagine walking down that hill in the snow, Much less going up?" said another. "It's unbelievable. It's really the right decision."

"They should keep every line they can. Without buses and mass transit, people have to scramble," said a third.

More reason why us citizens need to pay attention to what our representatives are doing with our money.

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